CRC Allowances – the time to buy is now!

In the recent budget, the Chancellor of the Exchequer announced that the CRC Energy Efficiency Scheme would continue to run to the end of the current Phase in March 2019.

The uncertainty caused by last year’s consultation on the business energy use taxation landscape, followed by the budget announcement meant that, for the millionth time, hopes of the early demise of the CRC were greatly exaggerated.

However, this uncertainty led to many participants sitting on the proverbial fence when it came to deciding their allowance strategy for 2016-17 and beyond. 

Now that the CRC’s immediate, if short, future has been confirmed, all crystal balls can be put to one side, and the serious matter of CRC allowance purchase can recommence.

So what does this mean?

1. For the rest of the Phase, CRC participants are still able to order their CRC allowances in April of each year (April 2016, April 2017 and April 2018) at a discount in an annual “forecast sale”.
2. Allowances purchased in the April 2016 forecast sale can be surrendered against annual emissions for any of following CRC years: April 2016 to March 2017; April 2017 to March 2018; April 2018 to March 2019
3. DECC has confirmed the prices in the table below for the remainder of the CRC Scheme – however, please note that asterisk against future prices. The key here though is that the differential between forecast and compliance price remains, though if these do rise by RPI exact costs will obviously differ from those detailed below

CRC Scheme Year	Forecast Sale Price	Compliance Sale Price
2015/16		£16.90
2016/17	£16.10	£17.20*
2017/18	£16.60*	£17.70*
2018/19	£17.20*	£18.30*

* Budget 2016 announced that sale prices would increase by RPI up until the closure of the scheme at the end of the 2018/19 compliance year – the provisions to enact the prices marked with a * set out in the table above will be made in due course, subject to Parliamentary approval. 

Should I purchase allowances in advance?

Evidently, cash that is used for the forward purchases of allowances will no longer be available for other uses.

However, when building a business case for forward purchases, CRC participants may wish to consider

• Allowances unused in one year can be rolled over to future years;
• Whilst allowances may be rolled forward from year to year, there may be a risk of a participant possessing a surplus of allowances at the end of the Phase;
• If participants have a short-fall they can top-up in the compliance sale windows;
• Allowance requirements are based on a factor of energy usage and emissions factors, both of which may change. Whilst emissions factors will be beyond participants’ control, consumption projections for future years should factor in organisational changes, energy efficiency interventions and business growth/retrenchment scenarios.

For the 2016-17 compliance year you can now choose to:

• Order allowances in the Forecast Sale window (April 2016) at £16.10 per tonne (these will be payable 2 – 20 June 2016), or
• Order allowances in the Compliance / Buy-to-comply sale window at the end of the compliance (in July 2017) at a projected cost of £17.20 per tonne (these will be payable 1 – 19 September 2017).

Indicative potential savings

If, in the 2015-16 compliance year, your CRC emissions were 10,000 tonnes, and if your requirement was the same for the 2016-17 year, buying allowances in the Forecast sale window could save you £1.10 per allowance, a total saving of £11,000.

In addition you could buy allowances for the 2017-18 and 2018-19 years with projected savings of £1.60 and £2.20 respectively per allowance (subject to RPI increases) – this equates to potential savings of £16,000 and £22,000 respectively, based on this 10,000 tonne example.

Reforming the business energy efficiency tax landscape

On a final note, the government will consult later this year on a simplified energy and carbon reporting framework, to be introduced in April 2019.  However, the Chancellor has already indicated that from April 2019, the main rates of the CCL will increase and the rates of CCL applied to gas and to electricity will be “rebalanced” over time to eventually reach a ratio of 1:1 by 2025. This could present a rather nasty surprise to those companies who use a lot of gas. To protect the most energy intensive sectors, the CCL discount available to Climate Change Agreement (CCA) participants will increase from April 2019. For all other large gas users, no such discount will apply.

 If you have any questions about the CRC or corporate energy tax landscape, get in touch.